Auto Refinance With Bad Credit in the Past

by Jason
(Georgia)

Question: Wanting to auto refinance with bad credit in the past. I bought my first car last April and have a pretty high interest rate (comparatively).

I had some credit problems in the past but have diligently worked to improve my credit situation over the last several years and as such was approved for my auto loan without a co-signer.

However, as I mentioned I have a pretty high interest rate at 16.5%.

I'm approaching one year of paying on this loan and have made all payments on time, I have also taken out a couple of personal loans and have paid them on time to try to build my overall credit. My salary has increased $10K in that same time span as well.

Is now a good time to re-finance my auto loan? If so, with my fair credit what sorts of terms do you think I might expect? If there will be little or no change in the terms I won't even bother refinancing.

Thank you!


Answer: Hi Jason,

Based on the information you've given me and making a few assumptions about your credit, I'd think that you may be able to refinance your auto loan with a credit union.

Whether or not you are able to do this will depend on a few factors...

First is going to be any delinquent accounts you had in the past and their current status.

I'm assuming since you've been working on your past credit problems over the past few years that any collections have all been paid or settled.

Most credit unions that I've worked with will require all collections be paid before they will approve an auto refinance with bad credit in the past or presently.

By the way, what bank are you currently financed with? Knowing this will help me understand your credit a little better.

Second is going to be your credit score. Your credit score is not so much to get approved (it may be a factor in the approval, but usually time on job, income, etc. are bigger factors), but it is how they will typically figure what rate you will qualify for.

If you have a 580 credit score or lower, then now may not be a good time to refinance, because your rates are probably not going to be much better (possibly worse) than they currently are.

If your credit score is in the 581-620 range, things may get a little better (might be the same), but refinancing in this range would be more to establish a relationship with the credit union so that when your score goes up you can easily refinance with them again.

If your score is in the 621-660 range, then it will definitely be worth it as most credit unions will be in the 8-12% range for these scores.

If your score has really jumped and you are anywhere over 660, then definitely consider refinancing as this could save you a substantial amount of money in interest/finance charges.

Most credit unions will have rates in the single digits for credit scores above 660.

If you are not sure what your score is, you can Get your Credit Score from CreditReport.com - fast, free and easy!

All that being said, you may need to wait just a little longer before this can happen. Why? Usually lenders will view a customer with an auto loan that has less than a 12 month history as a first time buyer.

Since you are looking for auto refinance with bad credit in the past, they may look at an 18 month history more favorably.

You may or may not need money down to get approved, but this will vary widely from credit union to credit union. If you have no down, I wouldn't let this stop you from at least taking a look at what might be available to you.

Hope this helps and please don't hesitate to ask any further questions.

Take care,
Justin